EUR/USD Bounces from Earlier Weakness as German Inflation Meets Expectations

Year-over-Year Euro Zone inflation fell to 8.6%, better than the 9.1% forecast and the 10% previous reading. Month-over-month Euro Zone inflation came in at -0.8%. The consensus was for a -0.3% reading.

Year-over-Year Harmonized Inflation was 9.6%, lower than the 10.7% forecast and 11.3% previous reading.

Inflation Readings Match Forecasts

German inflation was expected to have slowed to 10.7% year on year in December from November’s 11.3%, according to economists polled by Reuters.

The figures are for harmonized consumer price inflation, which the European Central Bank uses to compare prices across the Euro Area. Investors will be assessing the extent of ongoing cost pressures in Europe’s biggest economy, and what it could mean for the ECB’s rate hiking plans.

Meanwhile, in data published Tuesday morning, inflation in five key German states came in lower for a second consecutive month in December, suggesting national figures would follow suit.

That included the economic driver of North Rhine Westphalia, where CPI was 8.7% year on year, down from 10.4% in November.

Last month, Bundesbank president Joachim Nagel said he expected inflation to be lower in December in light of price caps introduced on gas and electricity.

The EUR/USD is sharply lower for the session, but stable after the news.